Life Insurance Policy Provisions, Options & Riders Flashcards
Activities of daily living (ADLs)
A person’s essential activities that include bathing dressing, eating, transferring, toileting, and continence
Assignment
Transfer of rights of policy ownership
Contingent beneficiary
A beneficiary who has second claim to the policy proceeds (after the primary beneficiary)
NAIC - National Association of Insurance Commissioners
Formed to resolve insurance regulatory issues
Principal amount
The face value of the policy; the original amount invested before the earnings
Trust
An arrangement in which funds or property are held bya person or corporation for the benefits of another person (trust beneficiary)
What constitutes an entire contract?
The policy and a copy of the application, along with any riders and amendments
What is a free-look period?
A provision that allows the policyholder a specific number of days from receipt to look over and return the policy for a full refund if at all unsatisfied.
Free-look period starts when the policyowner receives the policy, no when it is issued
Grace period
Time after the due date the policyowner has to pay the premium before the policy lapses (usually a month)
Reinstatement
Allows for a lapsed policy to be reinstated (maximum of 3 years can pass). Must provide proof of insurability, as well as pay back any due premiums plus interest.
Incontestibility clause
Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even from concealment or misstatement of material fact (except misstated age can change the premium/benefit)
When must claims be paid?
Immediately (within 30-60 days)
Representation
Written response indicative to the best of the applicant’s knowledge
Warranty
A statement that is guaranteed to be true
Exclusions: aviation
Covers fare-paying passenger or a pilot, but will exclude coverage for noncommercial pilots, or require additional premium for the coverage
Exclusions: war or military service
Most don’t exclude but of those who do, there are two clauses —
Status clause: excludes all causes of death while the insured is on active duty
Results clause: only excludes the death benefit if the insured is killed as a result of an act of war
Suicide provision exclusion
Insurance policies usually stipulate a period of time during which the death benefit will not be paid the insured commits suicide. The insureds beneficiary will only be entitled to a refund of the premiums
Primary benficiary
Has primary claim to the policy proceeds following the death of the insured
Contingent beneficiary
Has secondary claim to the policy proceeds, only after the primary beneficiary has passed prior to the insured (also called tertiary)
The Uniform Simultaneous Death Law
Stipulates that if the insured and the primary beneficiary died in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the primary beneficiary died first
The Common Disaster Clause
Stipulates that if the insured and the primary beneficiary died in the same common disaster (even if the insured dies first and it’s several days apart), the policy proceeds are to be distributed as if the primary beneficiary died first
Spendthrift clause
Protects beneficiaries from the claims of their creditors by requiring that the benefits be paid in a fixed period or fixed-amount installments
Automatic premium loan provision
Prevents the unintentional lapse of policy due to nonpayment of the premium. It is a loan for which the insurer will charge interest
Riders
Written modifications attached to a policy that provides benefits not found in the original policy
Waiver of premium
Waives the premium for the policy if the insured becomes totally disabled
(Disability rider)
Waiver of cost of insurance
In the event of disability in the insutrf, this rider waives the cost of the insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values
(Disability rider)
Disability income benefit
In the event of disability, the insurer will waive the policy premiums and pay a monthly income to the insured, which is normally based on a percentage of the face amount of the policy
(Disability rider)
Payor benefit
If the payor of the policy (often different than the insured) becomes disabled or dies, the insurer will waive the premium until the minor reaches a certain age, often 21. Also called Juvenile Insurance
(Disability rider)
Other insured rider (family rider)
Provides coverage for one or more family members other than the insured. Usually level term attached to the base policy
If it’s just the spouse, it’s called the spouse term rider
Children’s term rider
Allows children of the insured (natural, adopted, and/or stepchildren). Usually expires when the child turns 18 or 21. Can typically convert to their own policy with proof of insurability
Accidental death
Death must occur within 90 days of accident and is usually twice the face amouny (double indemnity), though some policies do triple indemnity
Guaranteed insurability
Allows the insured to purchase additional coverage at a later date or event without proof of insurability for an additional premium
Cost of living rider
Automatically increases the amount of insurance without evidence from the insured (due to inflation)
Return of premium rider
Provides that at a death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary
Accelerated benefit (Living Needs)
Allows the early payment of a portion of the death benefit for certain medical reasons
Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within two years The purpose of this rider is to provide the insured with the necessary funds to take care of necessary medical expenses
Cash surrender value
The policyowner surrenders the policy for the current cash value when coverage is no longer needed or affordable. Any cash value over premiums paid is taxable. The insured is no longer covered.
A surrender charge is a fee charged to the insured when a life policy or annuity is surrendered for its cash value
Extended-term
Perm insurance is converted to term for the same face amount with the same nonforfeitures
Reduced paid-up insurance
The insurer uses the policy cash value to puchase a completely paid-up permanent policy that has a reduced face amount from the former policy
Dividend options
Cash payment, reduction of premium payments, accumulation of interest, paid-up additions, paid-up insurance, one-year term option
Settlement options
Cash payment, life income (straight life), interest only, fixed-period installments, fixed-amount installments,
Cash payment
Lump-sum
Life income
Installment payments are guaranteed for as long as the recipient lives, irrespective of death. Amount of each payment is based on the life expectancy and amount of the principal. If the beneficiary exceeds that life expectamcy, payments may exceed the principal, though all payments are forfeit to the insurer as soon as the insured dies. With each of the guarantees, the size od the installment decreases
Single life
Can provide a single beneficiary income for the rest of his or her life. Upon a death of the beneficiary, the payment stop
Joint and survivor
Income for two or more recipients as long as they live, with the surviving recipient usually receiving a reduced payment after the first dies
Life with period certain
Payments are guaranteed for lifetime of the recipient, but they also have a specific period that is guaranteed
Life refund income option
The total annuity fund will be paid out to the annuitant or to the beneficiary. With the cash refund option, if the annuitant dies before the funds are depleted, a lump-sum settlement of the remainder will be made to the beneficiary, while umder the installment refund option, the beneficiary would receive the remaining funds in the form of continued annuity payments
Interest only option
The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals
Fixed period installments option
Is specified period of years is selected and equal install are paid to the recipient. If the recipient dies before the end of that, the payments would continue to a beneficiary
Also called period certain
Fixed amount installments option
The recipient selects a specified fixed dollar amount to be paid until the proceeds are gone. If the beneficiary dies before the funds are exhausted, the funds go to a contingent
Per Capita
By the head
Per Stirpes
By the bloodline
Dividend options
- Cash payment
- Reduction of premium payments
- Accumulation of interest
- Paid-up additions (add additional single premium policies to increase the face amount)
- Paid-up insurance (pay the policy up early)
